Mumbai: Driven by price hikes and volume growth, consumer packaged goods companies posted a robust double-digit sales growth in the three months ended 30 September. However, with inflationary pressures persisting, companies fear a sales slowdown in the coming months.
On an average, net profit for the 42 listed companies under review grew 19.2% in the quarter, compared with 10.39% a year earlier. Their combined revenue grew at 19.47%, against 14.47% earlier.
“Market growth has been healthy, but the price component of the growth is higher and volume is slightly lower, particularly in segments like soaps and detergents. So inflation is something that has to be watched out for, especially as to what impact it has on consumers,” said R. Sridhar, chief financial officer at Hindustan Unilever Ltd, the country’s largest packaged goods company by sales.
Profit boost: A file photo of a shoppers at a retail store. On an average, net profit for the 42 listed firms under review grew 19.2% in the quarter. Photo by Abhijit Bhatlekar/Mint.
Wholesale price inflation has consistently remained above 9% for 10 months in a row and been at least 8% for the past 21 months.
For the companies under review, operating profit margin (OPM), a measure of overall efficiency, stood at 16.49% in the September quarter, lower than 17.62% a year earlier, according to a Mint analysis.
OPMs were squeezed as the rupee depreciated against the dollar over the past four months. “Imported raw materials constitute 15-25% of raw material costs. The cost of direct imports has risen sharply following the 8% rupee depreciation in the last two months,” according to an 8 November report by brokerage house Anand Rathi and Stock Brokers Ltd.
Also, raw material prices were higher than a year ago. For instance, palm oil, an essential ingredient for soaps, was dearer by 10% year-on-year in the September quarter, according to Bloomberg.
Still, price increases and reduced advertising expenses saw OPMs expand sequentially, rising 36 basis points (bps) from the preceding June quarter. One basis point is one-hundredth of a percentage point.
Companies cut advertising expenditure to boost profitability. Advertising as a percentage of sales for Hindustan Unilever, the maker of Lifebuoy soaps and Kissan ketchup, was lower by 200 bps year-on-year.
Similarly, Dabur India Ltd, the maker of Hajmola candies and Real juice, and Marico Ltd, the maker of Parachute oil, saw advertising expenditure drop 363 bps and 146 bps, respectively, from a year ago.
Even as companies increased product prices on rising raw material prices and cut ad spending, analysts said the move could have a long-term impact on sales.
“We expect low ad spend over a long period to hit brand strength and the success of product launches,” said analysts Shirish Pardeshi and Aniruddha Joshi of Anand Rathi in their 8 November report.
Inflation could also play spoilsport. Already, persistently high inflation is impacting consumer confidence in the world’s second fastest growing major economy, which is likely to impact spending, according to Nielsen, which tracks such data.
“Inflation pressure is there on the consumer’s wallet. With such a situation of high inflation being there, we will not take much price increase,” said Chaitanya Deshpande, executive vice-president and head, investor relations and mergers and acquisitions, Marico.
In the three months ended 30 September, BSE’s FMCG index dropped 3.34%, while the benchmark Sensex index lost 12.69%.
Ashwin Ramarathinam contributed to this story.